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The Good, the Bad, and the Ugly in the Automotive Industry Last Month

Many automakers recorded double-digit U.S. sales gains last month, but there were some notable exceptions.

Overall, despite the "peak auto sales" doom-and-gloom narrative surrounding the automotive industry, February was another strong sales month in the U.S. market. Total sales of new vehicles grew nearly 7% to 1.3 million vehicles, the industry's best February in terms of total volume since 2001. The seasonally adjusted annualized rate of sales clocked in at 17.53 million, which was quite a bit stronger than the prior February's 16.39 million.

Individual automaker results were all over the map, though. Let's check out the good, the bad, and the ugly in February's results.

The goodFord Motor Co.(NYSE:F), Fiat Chrysler Automobiles, Honda Motor Co., and Nissan Motor Co. all recorded double-digit sales gains in the U.S. during February, but Ford's gains were the envy of all full-line automakers.

Ford's Explorer continues to sell well in the U.S. Image source: Ford Motor Company.

There were quite a few great factors in Ford's February sales numbers. Its total sales were up 20% year over year, with more than 217,000 units sold. Better yet, its retail sales reversed from a decline in January and posted an 11% increase. Those retail sales were driven higher by Ford's very profitable SUV segment, which recorded a sales gain of 22%, speeding past the car and truck segments, which gained 6% and 5%, respectively.

In fact, Ford's SUVs had their best February in company history, with sales jumping 28% compared to a year earlier. Ford's Edge, Explorer, and Escape all shined with sales gains of 91%, 18%, and 14%, respectively.

Another bright spot in Ford's February data was its luxury Lincoln brand. While the brand's performance is still far from what it was in its glory days, its turnaround is starting to take hold. Consider that after declining to a 32-year sales low during 2013, Lincoln posted its first year of annual sales above 100,000 last year. That was also the second consecutive year of sales gains since 1998. That trend is continuing so far in 2016, with February sales up 30% compared to last year's February. Lincoln's year-to-date sales are 19% higher than they were after the first two months of 2015.

The only potential negative in Ford's February sales data is that its fleet sales jumped 36%, driven by rental-fleet sales, and have been elevated thus far in 2016. Ford executives did mention on the conference call that they expect fleet sales will be higher during the first half of the year before tapering off in the second half and ending only slightly higher than last year's level -- but it's something for investors to keep an eye on.

The bad?General Motors(NYSE:GM) appears, at first glance, to have had a rough February, with sales declining 1.5%. Obviously, that's disappointing when you consider the industry's total sales were up 6.8% and that GM was the only automaker out of the top six to miss its estimates. However, when you look into the reason behind GM's sales decline, it's not as bad as it seems.

Investors have grown accustomed to hating the idea of "fleet sales" in general, and Detroit's automakers haven't always had a favorable history turning profits on them. However, it's important to note the difference between different types of fleet sales. Fleet sales to commercial business customers, which typically include full-size trucks, and fleet sales to the government, which include police cars and such, are still great for business. Fleet sales to rental-car fleets aren't as profitable, and GM has drastically cut those sales recently, which is impacting its total sales volume. The automaker reduced its rental fleet deliveries by roughly 16,500 last month; had those potential sales not been chopped out of the equation, its total sales would have been up 6% in February.

So, while these comparisons aren't exactly apples-to-apples due to GM's deliberate slashing of rental fleet sales, the sales it made were more profitable and healthy for investors. In the meantime, investors should look at retail sales, which emphasize sales from dealerships to individual consumers. GM's retail deliveries rose 7% in February, compared to the prior year's February -- a result that beat the industry average and was ahead of estimates.

The ugly There's no question mark at the end of "the ugly" -- for a reason. Volkswagen Group(NASDAQOTH:VLKAY) had another rough month in the U.S. as the fallout from its diesel emissions fraud continues to discourage sales. Volkswagen's U.S. sales fell for the fourth consecutive month as its namesake brand recorded a 13% sales decline to 22,321 vehicles.

It's really difficult to pin down how long its emissions fraud will impact sales, because there are still many things up in the air -- including Volkswagen Group's fourth-quarter results, which have been delayed as it tries to arrange a settlement with the U.S. government. Also, the company still hasn't clearly defined its plan to either fix the nearly 600,000 affected vehicles in the U.S. market or offer some other acceptable solution.

"We were pleased to see increased retail sales at our dealerships in February, supported by vehicles like the Tiguan," said Mark McNabb, chief operating officer of VW's U.S. operation, in a press release. "Even though overall sales were down due to seasonal fleet business, we are encouraged by showroom activity this month."

That's working pretty hard to put a positive spin on last month's results in the U.S. market, but really the only positive takeaway for Volkswagen investors is that the U.S. isn't its most critical market. If the company can salvage sales in Europe and in China, the worst indeed might be over. That said, the U.S. has long been a market VW wants to crack, and it remains a huge catalyst for the company if it can figure out how to increase its sales here substantially -- so this delay continues to be a large negative for its overall investment thesis.

Daniel Miller owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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As a Motley Fool Industrial Specialist, I use my marketing and business background in the automotive industry to evaluate major automakers and other large industrial corporations. Follow me on twitter for tweets about stocks, cars, sports, and anything I find amusing.
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